Investors who had faith in Green Mountain (GMCR)'s CEO Larry Blanford got burned on Thursday, as the stock shed nearly 48% of its value. After Blanford failed to deliver on his earlier forecast about the Keurig coffee machine maker's sales, he told analysts in a conference call Wednesday that he's still trying to figure out how it happened. That's "the honest answer," Blanford said.

And maybe it was. Either way, Blanford and the investors who lost money today could have paid more attention to the risks that he took in recent years by being so optimistic.

Once a market darling, the company's stock zoomed up to $111.17 per share on Sept. 14, 2011. But even as the news media masses babbled about Green Mountain's impressive growth, Blanford's reporting about his finances showed red flags. Green Mountain's AGR was a 9 as early as June 2010 and a 2 in June 2011, putting it into the very aggressive category for more than a year and indicating far higher accounting and governance risk than most other companies.

One reason for the low score: Insiders have sold their holdings in the company at opportune times on numerous occasions over the past five years. Just recently, insiders consisting mostly of high level directors and officers unloaded $42.4 million shares between February 26 and March 3. A week or two earlier, senior managers had also handed off $33.0 million shares.

In another sign of possible problems, Blanford's team reported unusually large values for Green Mountain's supplies of things such as coffee brewers and portion packs throughout 2011. The company's inventories were $602.1 million at March 24, 2012 compared to $300.8 million in the year-ago period. Under accounting rules, inventory is an asset because it represents what you haven't sold yet, and as such it's easy to falsify or honestly get wrong.

So Blanford, by saying that his inventory was going to be worth a lot once he sold it, opened himself up to skepticism. More than a year after the AGR began showing such warning signs, David Einhorn, who manages the hedge fund Greenlight Capital, publicly questioned Green Mountain's accounting of its finances in October 2011, according to press reports.

The stock's price began to underperform other companies in its benchmark index, the S&P midcap 400. In a particularly dramatic move between Nov. 9 and 10, 2011, it dropped more than 30% to around $47 per share, after Blanford and his team missed their fourth quarter sales estimate.

On Thursday the stock was trading at $25.87 per share when the market closed, after Blanford said late on Wednesday that he expects to earn between $2.40 and $2.50 per share in 2012, down from an earlier forecast of between $2.55 and $2.65 per share. The news garnered headlines such as Reuters' "Green Mountain management losing credibility with Wall Street" and The Motley Fool's "Is Green Mountain Coffee Roasters dead?"

So much for being the market's darling. On the conference call Wednesday, analysts grilled Blanford about his competition - which includes iron-fisted types such as Starbucks - as well as his company's inventory. He answered that he's positioned Green Mountain to "truly be the leader." As for inventory, Green Mountain has traditionally added coffee brewers through the spring and summer to make sure that it has enough inventory going into the fall. About a year ago, Green Mountain had trouble meeting orders for its coffee brewers and portion packs, so it decided to increase the number of portion packs it had on hand, he said.

Now, as analysts finally ask the pointed questions that they might have seen earlier in the AGR, Green Mountain's score has begun improving. The company's financial statements in December 2011 gave the company a 36, indicating accounting and governance risk that's higher than 64% of comparable companies. That's not great yet, but better.

Has Blanford learned a lesson? Only time will tell. GMI Ratings gives Green Mountain a C on its corporate governance.

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